1. This case has come before the Full Bench on a reference made by our learned brother Krishna Rao J., in second appeal heard by the learned Judge. The appeal arises out of a suit for partition and recovery of a share in certain immovable properties or in the alternative for dissolution of partnership and for taking of accounts. Plaintiffs 1 and 2 and defendants 10 to 12 belong to one family viz., Addanki family while defendants 1 to 9 belong to another family viz; Bhaskara family. These families founded a partnership at will somewhere in 1926 and carried on business in hulling rice and decorticating ground-nuts. On 2-2-1949 the plaintiffs issued a notice of dissolution of partnership being Ex. A-15 in the case. Thereafter on 4-3-1949 they filed the present suit claiming a one-fourth share in the properties belonging to the firm. The main objection of the defendants to this suit was that the plaintiffs had relinquished their share under Ex. B-18 dated 27-8-1936 under an unregistered karar. The plaintiffs in reply stated that Ex-B-18 was not a genuine document, that it was not acted upon and above all, that it was inadmissible in evidence for want of registration. These legal objections were found against by the Courts below. The execution of the document, however, was held to be proved. When the matter came up in second appeal, the question abont the genuineness of the document was not canvassed, there having been a concurrent finding of its having been executed. The question as to whether it was acted upon was also not pressed and the only objection on which arguments were advanced before the learned Judge was that the document was inadmissible in evidence, for want of registration.
2. It is admitted that what the plaintiffs purported to relinquish and assign to the 1st defendant under Ex. B-18 related to property worth more than Rs. 100/-. It may be mentioned that the Madras High Court in an earlier case in Venkataratnam v. Subba Rao, ILR 49 Mad 738: (AIR 1926 Mad 1040) held the view that a document which is executed by a partner of a partnership whereby he relinquishes his share in the partnership property, does not fall under Section 17(1)(b) of the Indian Registration Act. The learned Judges held that although the partnership might hold immovable property the relinquishment would not amount to his having given up his interest in the immovable property, for, although the property held by a partnership is regarded in law as partnership property and not that of any individual and the partner is only entitled to a share in the partnership assets after dissolution, it could not be predicated that he would have necessarily, on a dissolution, an interest in the immovable property, for it might happen that at the time of the dissolution after converting all property, the adjustment would be by payment of the debts due by the partnership, next the payment of advances made by the partners and the residue, if any, to be divided amongst the partners. This view of the learned judges was dissented from in a subsequent case of the same High Court in Samuvier v. Ramasubbier, ILR 55 Mad 72; (AIR 1931 Mad 580). In view of the conflicting decisions the learned Judge thought that the matter should be considered by a Full Bench and an authoritative pronouncement given. Hence this reference to the Full Bench.
3. The relevant provision of the Registration Act which makes registration of documents pertaining to immovable property compulsory and which applies to this case is Section 17(1)(b), which is as follows:
17(1)(b): Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property.'
By the document Ex. B-18 the plaintiffs declared that they give up their share in the machine etc. and in the business and also made over the same to the other partners alone completely by way of adjustment. The document also says that the other partners shall carry on business without the plainiffs having anything to do with the profit and loss. It further recites that the other partners have given the plaintiffs property forming one Venkata Subbaiah's share previously. Having regard to the tenor of the document, it is contended by the learned counsel for the appellant that it operates to extinguish the right of the plaintiffs in immovable property and as such it clearly fell within the purview of Section 17(1)(b) of the Registration Act. There can be no doubt that if by this document the interest in immovable property is sought to be extinguished then it is compulsorily registrable. The question, therefore, is what is the nature of the interest of a partner in the partnership property, where the partnership property consists of movable and immovable property, would the relinquishment of a right or interest in immovable property or could it be described as a benefit arising out of land within the meaning of immovable property as defined in Section 3 of the General Clauses Act? It has to be observed that the law relating to partnership has now been embodied in the Partnership Act, Act IX of 1932. Prior to this Act the law relating to partners and their rights inter se was governed by Chapter XI of the Indian Contract Act (as it then stood). Section 253 of the Contract Act related to the rights determining the partners' mutual relations and Sub-section (7) of Section 253 enacted that if from any cause whatsoever any member of partnership ceases to be so, the partnership automatically dissolves as between all other members. While this was the position under the Contract Act, such a position does not arise under the Indian Partnership Act. There is no dissolution of the partnership as such on one of the partners retiring from the partnership.
4. It would be useful to consider the position in law of the right of the share of a partner in a partnership, for, that would determine as to whether it is movable or immovable property what is the concept in law of a share of a partner in a partnership?
5. So far as English law is concerned it may be taken to he settled that a partner has no interest in 'Partnership Realty' as distinguished from the money arising from its sale. The share of a partner, therefore, is nothing more than his proportionate share of the partnership assets after they have been turned into money and applied in liquidation of the debts of the partnership. Further, in equity whether the assets of a partnership consist of land or not the share in a partnership must be deemed to be personal and not real estate. No doubt the tendency of decisions in England has has been to bring partnership agreements conveying interests in land along with other assets within Section 4 of the Statute of Frauds.
6. It may be said that the rule adopted by English Courts is that real estate intended by the partners to constitute a part of the partnership property or treated by them as belonging to the partnership is regarded in equity as converted into personality for all purposes, and also for the settlement of the claims of the partners inter se. The law in India is not different. Sections 14 and 15 of the Indian Partnership Act of 1932 speak about what would constitute the property of a firm and declare that such property shall be held and utilised for the purpose of the partnership thereby indicating that so long as the partnership continues no part of the assets of a partnership could be regarded as belonging to any individual partner. Further, no part of the partnership assets could be utilised for a purpose other than that of the partnership. A partner, therefore, seeking to get his share could not get his share in specie in the movable and immovable properties but only after the assets have been converted into money, debts and liabilities discharged and it is only in the residue that he could get his proportionate share. The Statute enjoins this process being gone through before a partner gets a share in the assets of the partnership and it is governed by Sections 46, 48 and 49 of the Partnership Act. It would, therefore, follow that a partner cannot predicate of a definite share in immovable property which he could transfer or give up.
7. Questions have arisen incidentally though not directly in this form, but the decisions in those cases lend further support to the view that the interest of a partner under the partnership assets which include immovable property cannot be regarded as an interact in immovable property. In a suit for dissolution of partnership which owned a factory, the question arose as to whether the suit fell under Clause (a) or (d) of Section 16, C. P. C. It was held that a suit for dissolution of partnership was not a suit for the determination of any right to or interest in immovable property within the meaning of Clause (a) or (d) of Section 16 C. P. C. Vide Durga Das v. Jainarayan, AIR 1919 All. 350, the ratio decidendi of this decision being that a decree could only be for the immovable property belonging to a partnership being sold and the sale proceeds being disposed of in accordance with the rule in Section 46 of the Partnership Act and the plaintiff given his share in the residue. In the case of Sudarsana Maistry v. Narsimhulu Maistry, ILR 25 Mad 149, before the Madras High Court the plaintiff filed a suit for a share in the partnership property which consisted of immovable property as part of the partnership assets. The defence to the suit was that the suit was barred by limitation. This plea was met by the argument that the suit must be regarded as a suit for a share in immovable property purchased by the partner from the profits of the partnership and therefore no question of limitation arose, Sir Arnold White C. J. and Bashyam Ayyangar J., held that it was partnership property alone. They further held that although immovable properties were comprised in the properties of the partnership a suit for dissolution of partnership would be governed by the three year rule.
8. In ILR 49 Mad 738: (AIR 1926 Mad 1040), the question for decision was whether a release by a partner of his share in the partnership property evidenced by a deed was compulsorily registrable under Section 17(1)(b) of the Registration Act. Phillips and Madhavan Nair JJ., observed that when a partner retires from a partnership by releasing his rights therein, the property still remains the property of the partnership, and the action in releasing his rights does not actually extinguish his right in the immovable property. The reason for this, according to the learned Judges, was that the partner was merely receiving his share of the assets on going out of the partnership and the immovable property still remains the property of the partnership as before. This matter came up for consideration in ILR 55 Mad 72: (AIR 1931 Mad 580) and Curgenven and Cornish JJ., were reluctant to follow the view taken in the earlier case. Here in this case the plaintiff and the defendant were partners in a money dealing business and also a chit fund business. The two firms had dealings with each other. The partners of the two firms happened to be brothers. Disagreement arose between the brothers and by an agreement, Ex, K the plaintiff purported to take over the defendant's interest in the moneylending business under the name V. S. R. S. Firm, while the interest of the plaintiff in the other firm viz., R. S. Firm was assigned to the defendant. The defendant also accepted liability for a sum of Rs. 13,000/- due by the R. S. Firm to the V. S. R. S. Firm.
Later on another partner who had a half share in the V. S. R. S. Firm and the plaintiff dissolved their partnership and it was arranged that the debt due from the R. S. Firm should be taken over by the plaintiff. The plaintiff tried to recover this amount. Among the various objections raised by the defendant, one was that the document Ex. K. under which the defendant took over the liability of the R. S. Firm was compulsorily registrable and, therefore, could not be received as evidence of any transaction affecting immovable property. The learned Judges did not agree with the view taken in ILR 49 Mad 738: (AIR 1926 Mad 1040), for the reason that according to them, in that case the provisions of Section 253 of the Contract Act were not considered and lost sight of. Section 253(7) says
'If from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as between all the other members.'
The learned Judges who decided the case of ILR 55 Mad 72: (AIR 1931 Mad 580), opined that where there was a partnership of three persons and one went out the whole partnership was dissolved and if the two remaining persons resume business as the partners it could only be by the formation, tacit or express, of fresh partnership. They further observed that if the original partnership of three held immovable property and it afterwards vests in the new partnership of two, it can only be by a transfer of interest from the one to the other. The matter incidentally arose in Panjam Tirumalappa v. Alasyam Ramappa 1937-2 Mad LJ 511: (AIR 1938 Mad 133).
Varadachariar, J., while adverting to Section 253 of the Contract Act stated that all immovable property purchased with partnership funds must be deemed to be held by the partners as joint owners. The learned Judge further observed that on a dissolution, when the partners settle their affairs they may either allot to one or either of them particular items in entirety or in varying shares not necessarily in the particular proportion of the share of each partner in the whole partnership property. The following observations of the learned Judge are significant:
'There is much to be said in favour of the view taken in ILR 55 Mad 72: (AIR 1931 Mad 580), that the question of registration may arise in such cases though there is also authority to the contrary.'
This observation of the learned Judge would clearly indicate that the question of registration does not automatically arise when a partner releases his share in the partnership assets containing immovable property. It is dependent, therefore on how the matters are settled at the time of the dissolution. This case came on appeal before a Bench consisting of Sir Lionel Leach C. J. and Somayya J. in Alasyam Ramappa v. Tirumalappa, ILR (1939) Mad 971: (AIR 1939 Mad 884). The learned Judges allowed the appeal and held that the document Ex. A which set out the terms of the dissolution and was signed by all the partners and which declared that three partners have rights for equal shares to the lands (the suit Propertes) was compusorily registrable and not being registered was inadmissible in evidence.
The learned Judges observed that until an account had been taken and provision made for the discharge of the liabilities, no partner could be claimed to be entitled to have a definite share in a particular asset. But in this case as it happened that on a dissolution the remaining assets which included immovable property were divided among the partners in equal shares and as that document declared that each one of the partners was entitled to a share in the immovable property that remained after the taking of accounts, they held Section 17(1)(b) of the Registration Act applied. In our opinion this case is distinguishable From the case before us for the reason that there has been no dissolution of the partnerhip as such. We may point out that in ILR 55 Mad 72 : (AIR 1931 Mad 580), the document was an agreement whereby the partnership was dissolved and by the severance of their interests, specified assets in the two distinct partnerships were assigned to each of them and these assets included immovable property and under those circumstances, where the assets were assigned to the individual partners who retired, it amounted to a declaration of a right in immovable property and as it affected immovable property the document was compulsory registrable. The learned Judges dealing with that case, in not approving of the previous decision in ILR 49 Mad 738 : (AIR 1926 Mad 1040) were influenced by the fact that the former decision did not take note of the provisions of Section 253(7) of the Contract Act whereby a complete dissolution followed on the retirement of a partner, for their Lordships observe as follows:
'In ILR 49 Mad 738: (AIR 1926 Mad 1040) (supra), Phillips and Madhavan Nair JJ., have held that a document of the nature of Ex. K does not require registration, but with all respect I am unable to adopt the reasoning upon which the decision is based. The theory underlying is that both before and after a partner releases his rights the property is and still remains the property of the 'partnership' meaning by the phrase, I think the learned Judges would have conceded a legal entity which does not itself undergo change. But this is surely to lose sight of the fact that 'if from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as between all other members'--Contract Act, Section 255(7).'
The reason why the learned Judges who decided the case of ILR 55 Mad 72: (AIR 1931 Mad 580) thought that there was no analogy between the transfer of shares of a joint stock company and that in a partnership is that in the latter case release of a partner's share would result in a dissoulution of the partnership whereas the case was different with regard to joint stock companies.
9. This distinction, we must point out, has now vanished with the change in the Law of Partnership under which the retirement of a partner does not ipso facto bringing about a dissolution of the partnership.
10. Consequently it may be stated that the principle underlying the decision in ILR 55 Mad 72: (AIR 1931 Mad 580) (supra) may not hold good after the change in the Law of Partnership.
11. Our attention was invited to a decision by the learned counsel for the appellant to a Full Bench decision of the Madras High Court in Secretary, Board of Revenue v. Alagappa Chettiar, ILR (1937) Mad 553: (AIR 1937 Mad 308). There, the question was as to whether a particular document fell within the definition of an instrument of partition within Section 2(15) of the Stamp Act and it was argued that the document could not be regarded as an instrument of partition because it could not be proper to regard partners as co-owners of the partnership property. While dealing with this argument the learned Judges of the Full Bench referred to both the earlier cases of the Madras High Court and only observed that Section 253 of the Contract Act eclared the partners to be joint owners of the partnership property. They stated that the wording of Section 14 of the Partnership Act of 1932 which replaced the provisions of law of partnership in the Contract Act though slightly different did not make any difference in principle. We do not think that that decision dealt with the question directly at issue in this case and, therefore, is not in point.
12. In determining whether transfers of shares of partnerships which hold immovable property among other assets, require registration the Court must be influenced by the policy of the Partnership Act. The legal conception of the share of a partner in a partnership cannot be assessed in our opinion, by reference to the possibility of his getting a share' in the immovable property possessed by the partnership, for his getting a share in the immovable property is only an uncertain factor.
13. A Full Bench of the Lahore High Court in the case of Ajudhia Pershad v. Shamsunder, ILR (1947) Lah 417: (AIR 1947 Lah 13) held that the interest of a partner in partnership assets comprising of movable and immovable property would be treated as movable property. We are in agreement with the view expressed in the above.
14. Our answer to the question referred to is that the interest of a partner in partnership assets cannot be regarded as a right of interest in immovable property within the meaning of Section 17(1)(b) of the Registration Act.
(After the Full Bench had expressed its opinion on the reference, the second Appeal came back to Krishna Rao J., who delivered the following)